Money

What is it?

Money can be defined as ‘anything that is widely accepted as a means of
making payments’.

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Before money

Before money, there was a system of barter: A system for the exchange of
goods or services. This works only if there is a double coincidence of wants.
This means that what I have to exchange is what you want and what you have
to exchange is what I want.

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Functions

• A means of exchange
It is a way of paying so that we can buy and sell goods and services.
• A store of value
It is a way of saving so that we can pay for items in the future.
• A standard for deferred payments
It measures what we owe if we do not pay immediately, eg if we borrow
money.
• A unit of account
It is a standard measure of what things are worth, which means that we can
keep accounting records.

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Features

For money to perform all of these functions, it must have the following features.

Legal tender

The type or amount of money that cannot be refused in payment of a debt. For
example, 20p pieces are legal tender up to a total of £10 in a single transaction.

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Worth

Money is worth what you can buy with it. This is known as "purchasing power". Money tends to buy less in the future than it will today. This is called the ‘time value of money’ and is caused by inflation.

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What is money

Money consists of coins, bank notes and bank balances. Most of the world’s money supply is held as bank balances – that is, electronic
computer records such as banks.